There is a lot going on in the world and markets right now. Many investors want to be more defensive and emphasize dividends at a time like this. Last week, we discussed two of our favorite high-yielding investments, Ares Capital (ARCC, Nasdaq, 21.25) and Gladstone Investment (GAIN, Nasdaq, 14.79), each yielding close to 8% and both good buys now. Today, I discuss two more defensive companies with good dividends.
Nestle SA (NESN:VX; NSRGY:OTC) (NESN, Switzerland, 11516) saw organic sale growth of 7.5% for the year, double the previous year's and the fastest in five years. The company is targeting 4–6% growth rate for the longer term. Pet food was very strong, as were frozen food and ready meals, and coffee, amid stay-at-home restrictions during the Covid pandemic. Offsetting that, baby food was weak. (I’m not sure what it says about the human race when we spend more on pets than on babies.)
CEO Mark Schneider said he was optimistic that the company can maintain its profit margins as price increases offset higher input costs, expecting an underlying operating profit margin of 17%. This is down on the previous number, but due largely to a lag in implementing price increases. Despite higher prices, Nestle has experienced little “downtrading” by the consumer, other than in a few specific areas. Premium products in particular have held up well.
More small “niche” acquisitions ahead
Despite a large war chest, boosted by $10 billion from the sale of a stake in L’Oreal, Schneider said the company would likely continue with small and medium-sized acquisitions rather than one large one. In fact, the proceeds from the L’Oreal stake — Nestle still holds about 20% of the French cosmetics maker — will go towards a new Chf 20 billion stock buyback program which will run for two years.
Nestle stock has been strong for several years, up 30% in the last 12 months, despite a pullback this year. The yield of 2.4% is essentially its lowest for 14 years despite another increase in the dividend, as the stock has risen faster than the payout. We are holding; Nestle is a solid company but the stock is expensive. However, for investors looking for defensive investments, this is a reasonable time to buy Nestle.
Attractive dividend at Hutchison, likely to stay
Hutchison Port Holdings Trust (HPHT:Singapore) (HPHT, Singapore, US$0.245) said revenue jumped 24% on a 3.5% increase in port throughput year-on-year, higher than expected, enabling a boost in the first distribution this year. Higher average revenue per container and lower finance costs contributed to the income gain. But the biggest factor was higher storage income due to heavy port congestion, which the company think will continue into the year.
The company expect revenue this year to maintain last year’s level, with port congestion reducing volume but offset by higher storage income. The distribution for this year will be a minimum of 14.5 HK cents, the same as last year. The forward yield is nearly 8.5%. Buy but don’t chase.
IT’S RARELY a good idea to react to markets. We shall have more comments in coming days as the situation becomes clearer.
Originally published on Feb. 24, 2022.
Adrian Day, London-born and a graduate of the London School of Economics, is editor of Adrian Day’s Global Analyst. His latest book is "Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks."
Disclosures:
1) Adrian Day: I, or members of my immediate household or family, own securities of the following companies mentioned in this article: Nestle, Ares, Gladstone. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. Funds controlled by Adrian Day Asset Management, which is unaffiliated with Adrian Day’s newsletter, hold shares of the following companies mentioned in this article: All. I determined which companies would be included in this article based on my research and understanding of the sector.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.
Adrian Day's Disclosures: Adrian Day's Global Analyst is distributed by Investment Consultants International, Ltd., P.O. Box 6644, Annapolis, MD 21401. (410) 224-8885. Publisher: Adrian Day. Owner: Investment Consultants International Ltd. Staff may have positions in securities discussed herein. Adrian Day is also President of Global Strategic Management (GSM), a registered investment advisor, and a separate company from this service. In his capacity as GSM president, Adrian Day may be buying or selling for clients securities recommended herein concurrently, before or after recommendations herein, and may be acting for clients in a manner contrary to recommendations herein. This is not a solicitation for GSM. Views herein are the editor's opinion and not fact. All information is believed to be correct, but its accuracy cannot be guaranteed. The owner and editor are not responsible for errors and omissions. ©2021. Adrian Day's Global Analyst. Information and advice herein are intended purely for the subscriber's own account. Under no circumstances may any part of a Global Analyst e-mail be copied or distributed without prior written permission of the editor. Given the nature of this service, we will pursue any violations aggressively.
